by

Commissioner Luis A. Aguilar

U.S. Securities and Exchange Commission

SEC Open Meeting
Washington, D.C.
November 3, 2010

The Dodd-Frank Act has given the Commission broad authority to oversee the market for security-based swaps, which has operated without adequate regulation or transparency. One important aspect of the Commission's new regulatory powers is enhanced authority to prohibit misconduct with respect to security-based swaps.

The antifraud rule we propose today is intended to address the unique nature of security-based swaps — in particular, the potential for fraud and manipulation both within markets and across markets. The rule would address not only fraud or manipulation with respect to security-based swaps, but also fraudulent or manipulative conduct regarding an underlying reference security that affects the value of a security-based swap.1

This would be the Commission's first antifraud rule specifically addressing security-based swaps, and I am particularly interested in comment on the following two issues.

First, as the release asks, is there potential fraudulent conduct that the rule does not capture? And if so, how we should modify the rule to address this?

And, second, is the rule sufficiently flexible that it will continue to be effective as the market for security-based swaps evolves?

Finally, I join my colleagues in thanking the staff across the agency for their work on this proposal.

Endnotes

1 The proposed rule is intended to address a wide range of misconduct. First, similar to our existing antifraud rules, the rule would prohibit both scienter-based and negligence-based misconduct in connection with the offer, purchase, or sale of any security-swap. Second, recognizing that security-based swaps are generally characterized by ongoing payments or deliveries between the parties, the rule would prohibit misconduct designed to trigger, avoid, or affect the value of those payments or deliveries. And, finally, the rule would address cross-market misconduct by prohibiting fraud, manipulation, and deception with respect to the underlying reference security when the misconduct affects the security-based swap.